DirecTV (Nasdaq: DTV) will soon begin charging about 5 million subscribers in New York, Los Angeles and other markets with expensive regional sports networks monthly surcharges of $3, CEO Mike White said Thursday.
Last year, the top satellite TV provider began charging new subscribers in Los Angeles and New York an additional $3 monthly to cover the costs of RSNs such as Time Warner Cable SportsNet and YES Network. But White told analysts on DirecTV's earnings call Thursday that the company will be forced to charge existing subscribers in those markets, which he said represent about 20 percent of its subscriber base. DirecTV counted 20.08 million U.S. subscribers at the end of the fourth quarter.
"The whole sports business model is broken. The only alternative we have if we're going to carry sports channels in these few markets that are completely out of control and unaffordable frankly for the average consumer, is with some kind of surcharge," White said. Existing subscribers will begin seeing the RSN surcharge on their monthly bills this spring, he added.
CFO Patrick Doyle aid DirecTV expects its overall programming expenses to increase by about 8 percent in 2013. The company will look grow revenue through rate increases and by reducing the amount of promotional discounts it offers customers, he added.
DirecTV isn't the only pay TV provider using surcharges to help cover the cost of sports programming. Last month, Verizon (NYSE: VZ) began charging all FiOS TV subscribers in the Los Angeles area a monthly surcharge of $2.42.
White said the $3 surcharge only covers a fraction of DirecTV's programming expenses to carry RSNs in New York and Los Angeles. "It doesn't come close to covering the total cost for sports in those markets," he added.
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